Fourth Circuit Takes A Narrow View On Recovery Of E-Discovery Costs

by Brooks Pierce
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You've undoubtedly prevailed in a federal case -- either at summary judgment or after a trial -- and you have probably struggled with what you are entitled to recover as costs under 28 U.S.C. §1920. And recently, your client, being the victor, most likely has asked about the recovery of its costs associated with the production of electronically stored information.

The Fourth Circuit's decision on Monday of this week in The Country Vintner v. E & J Gallo Winery, Inc. gives answers to those questions, but your prevailing party client won't like them.

Gallo ran up bills from e-discovery vendors of more than $100,000 in its production to the Plaintiff of its ESI, and it sought to have the District Court award that as an element of costs. The bulk of that amount was for "flattening" and "indexing" the ESI. The Court defined that as the "initial processing" of the data, which:

involved decompressing container files (e.g., ZIP files or Microsoft PST files); making the data searchable by extracting text and creating Optical Character Recognition for text that could not be extracted; indexing the data; removing system files that were known not to contain any user-generated content; and removing duplicate files.

Op. at 5.

That part of the application for costs was denied by the District Court, which was affirmed by the Fourth Circuit.

The Court was constrained by the terms of 28 U.S.C. sec 1920(4), which says that a "judge or clerk of any court of the United States may tax as costs . . . fees for exemplification and the cost of making copies of any materials where the copies are necessarily obtained for use in the case."

The heart of the holding was in the narrow definition of "making copies." The Court relied on the Third Circuit's decision in Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012), which held that "only the scanning of hard copy documents, the conversion of native files to TIFF, and the transfer of VHS tapes to DVD involved 'copying'" within the meaning of §1920(4). Id. at 171.

Judge Davis of the Fourth Circuit ruled that "subsection (4) limits taxable costs to . . . converting electronic files to non-editable formats, and burning the files onto discs." Op. at 21.  Thus, Gallo recovered only about $600 of the more than $100,000 it had asked for.
Why so little? Well, as the Supreme Court has said,
Taxable costs are a fraction of the nontaxable expenses borne by litigants for attorneys, experts, consultants, and investigators. It comes as little surprise, therefore, that costs almost always amount to less than the successful litigant’s total expenses in connection with a lawsuit.
Taniguchi v. Kan P. Saipan, Ltd., 132 S. Ct. 1997, 2006 (2012).
If you don't like this result, your only option may be to move to England, where "loser pays" is the general rule.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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